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Category: Bankruptcy Law
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I own multiple companies with another individual. We had a

Customer Question

I own multiple companies with another individual. We had a falling out a few years ago after she refused to sign an operating agreement. So we are currently following Ohio law in regards XXXXX XXXXX contributions determining ownership, etc. And the companies continue to exist, etc. We recently discovered that she declared bankruptcy but did not claim any of her companies as assests, etc. Other operating agreements have stated that bankruptcy is a reason for a member to be forced to give up ownership. Is that the case when there is n operating agreement in place. And if yes - what should my next steps be - other than getting an attorney.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Roger replied 1 year ago.
Hi - my name is Kirk and I'm a Bankruptcy litigation attorney. Thanks for your question.

Even if there's no operating agreement, the Ohio Code addresses this issue:

========

1705.15 Person ceases to be member of company.

Except as approved by the specific written consent of all members at the time, a person ceases to be a member of a limited liability company upon the occurrence of any of the following events of withdrawal:

(A) A member resigns or withdraws as a member in accordance with the operating agreement or under section 1705.16 or 1705.18 of the Revised Code.

(B) A member is removed or expelled as a member in accordance with the operating agreement.

(C) Unless otherwise provided in writing in the operating agreement, the member does any of the following:
(1) Makes an assignment for the benefit of creditors;

(2) Files a voluntary petition in bankruptcy;

(3) Is adjudicated a bankrupt or insolvent;

(4) Files a petition or answer in any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief proceeding under any law or rule that seeks for himself any of those types of relief;

(5) Files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against him in any proceeding seeking the relief described in division (C)(4) of this section.

(D) Unless otherwise provided in writing in the operating agreement, a period of one hundred twenty days has elapsed after the commencement against the member of any proceeding seeking the relief described in division (C)(4) of this section, and the proceeding has not been dismissed; a period of ninety days has elapsed after the appointment of a trustee, receiver, or liquidator for the member or for all or any substantial part of his properties without the member’s consent or acquiescence, and the appointment has not been vacated or stayed; or a period of ninety days has elapsed after the expiration of that stay, and the appointment has not been vacated.

(E) Unless otherwise provided in writing in the operating agreement, a member who is an individual dies or is adjudicated an incompetent.

(F) Unless otherwise provided in writing in the operating agreement, the trust of which a member is a trustee terminates. This division does not apply to the mere substitution of a new trustee.

(G) Unless otherwise provided in writing in the operating agreement, if a member is a partnership, the dissolution and commencement of winding up of the partnership.

(H) Unless otherwise provided in writing in the operating agreement, if a member is a separate limited liability company, the dissolution and commencement of winding up of the separate limited liability company.

(I) Unless otherwise provided in writing in the operating agreement, if a member is a corporation, a certificate of dissolution or its equivalent is filed for the corporation, or its charter is revoked and is not reinstated within ninety days after the revocation.

(J) Unless otherwise provided in writing in the operating agreement, if a member is an estate, the distribution of the estate’s membership interest.

===========

Thus, the filing of bankruptcy ends the person's membership in the company - it operates as a withdrawal. However, you will likely need to file a petition in court to confirm the disassociation of the member due to bankruptcy. But first, you would have to file a motion in bankruptcy court to lift the stay against your business ventures in order to file the petition to liquidate the person's interest.

A local bankruptcy or business law attorney can help you through the process.

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